Wall Street firm lowers L.A.'s financial outlook from 'stable' to 'negative'
February 17, 2010 | 3:19 pm One of the nation's top financial credit services Wednesday issued a negative outlook for Los Angeles, which is struggling with a $212-million budget gap. The move could lead to a lower credit rating for the city and ultimately increase Los Angeles' cost of borrowing money.
Moody's Investors Service took the action because of delays by the city in addressing the budget shortfall, which is expected to grow to $485 million in the 2010-11 fiscal year. The service also expressed doubts that proposed layoffs and service cutbacks under consideration by the City Council would deliver the promised savings.
"The erosion in the city's historically better-than-average willingness and ability to quickly re-balance its budget mid-year also contributes to this revised outlook," the ratings firm said in a statement.
In November, L.A.'s credit was downgraded by Fitch Ratings, which determined that Mayor Antonio Villaraigosa and the council had failed to take adequate action to address the city's fiscal crisis. Villaraigosa has since ordered department heads to eliminate 1,000 jobs, but employee unions are lobbying to avoid layoffs.
The nation's other major credit rating agency, Standard & Poor's, has not made any public announcement regarding Los Angeles.
Because the city collects tax revenue intermittently throughout the year, it depends on short-term loans to make payroll and pay bills.
-- Phil Willon at Los Angeles City Hall